Over the past several years, medical providers in particular have been beset by wage and hour claims arising out of so-called “auto-deduct” policies. A recent case, arising out of the Eastern District of New York, a jurisdiction that has generally been friendly to plaintiffs in this arena, suggests that such claims may ultimately fail.

In Desilva v. North Shore-Long Island Jewish Health Sys, Inc., 10-cv-1341 (E.D.N.Y. June 5, 2014), the Eastern District of New York decertified a 1,000+ class of hospital workers asserting FLSA unpaid overtime claims based on their employer’s use of a policy that automatically deducted 30 minutes of time per employee shift for lunch. In doing so, it became the latest in a string of decisions which have held that an employer’s implementation of an automatic deduction policy does not, in and of itself, warrant final certification.

The plaintiffs were LIJ current and former health care employees across the country. LIJ used the popular “Kronos” timekeeping system and a procedure in which managers entered employees’ schedules into the system, and the employees verified their hours worked by swiping their security badge when the entered and left the facility. However, the employees did not swipe in and out for meal periods. Instead, Kronos was programmed to automatically deduct half-hour meal periods for all employees who worked six or more hours in a single day. The employees were paid for their scheduled shift hours minus 30 minutes for the automatic deduction, unless their managers added time worked during the meal period to the employees’ time cards.

The plaintiffs alleged that as a result of LIJ’s auto deduct policy and Kronos system, they often worked through meals and breaks but were not compensated in violation of the FLSA. In March 2012, the court conditionally certified the matter as an FLSA collective action. After notice was issued, 1,196 plaintiffs opted in to the action. Approximately one year later a new district judge was assigned to the case. The following year, LIJ moved to decertify the class based on what the court described as a “voluminous” evidentiary record.

The court agreed with defendants and decertified the class based on several grounds. The court noted that during the last few years, numerous courts have found that automatic meal deductions are facially legal and that, without more, such policies “cannot serve as the common bond around which an FLSA collective action may be formed.” Thus, the court found that the plaintiffs were unable to point to a common violation of the law that bound the purported class action. Absent such a unifying illegal policy, the plaintiffs were required to demonstrate that LIJ systematically disregarded its own legal policy and that it was done in such a uniform and pervasive way as to warrant class treatment. The court found that the plaintiffs failed to do so and, to the contrary, the evidence demonstrated a wide range of compensation practices across the various facilities.

Finally, the court also found that if it allowed the matter to proceed as a collective action, it would be left in the untenable position of having to choose between either holding, in effect, 1,196 mini-trials or depriving the defendants of their due process right to present a full defense. The court therefore decertified the collective action.

What jumps out about this case is that the factors which led the court to decertify the class – the reliance on a wage payment policy that was facially legal, the inherent individualized inquiry that would be necessary to show that such a facially legal policy was illegally applied, and a class that could not realistically be taken to trial – should all have been readily apparent at the conditional certification stage. Unfortunately, due to the lenient conditional certification standard, the defendants were forced to engage in nearly two years of class discovery and compile a “voluminous” evidentiary record to dispose of a national collective action that never really had a chance of success. This is why many defense counsel (this one included) are of the opinion that any “efficiencies” of the lenient FLSA conditional certification process are more than offset by the resulting failure to weed out untenable class actions prior to expensive class discovery and decertification.

The Bottom Line: Automatic meal deductions are facially legal under the FLSA and, without more, are not enough for plaintiffs to prevail on a FLSA collective action. Unfortunately, because of the lenient conditional certification standard, it still might take an employer years of litigation to successfully defend against such claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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